Is the The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5) deal too big for the Kushner family? Market sources believe that the candidate for acquiring the controlling interest in the insurance group from Delek Group Ltd. (TASE: DLEKG) is contemplating the addition of a foreign partner for the planned deal.
It appears that the problem is the capital terms required of the purchaser for the deal and obtaining authorization from the Supervisor of Insurance. Market sources say that the financing blueprint agreed upon by the parties to the deal, which includes a loan of nearly $1 billion from Delek Group (more than half the price for the deal), are expected to create serious problems in obtaining approval from the Ministry of Finance Capital Markets, Insurance, and Savings Division.
The Kushner group said in response that it was "continuing its focus on due diligence and obtaining the regulatory approval necessary for completing the deal." The group long ago submitted an official request to the Capital Markets, Insurance, and Savings Division to carry out the necessary checks for obtaining approval for owning a controlling interest in an insurance company. This was in the preliminary state of checking the potential buyers and their extensive history in the US. As far as is known, the Finance Ministry has yet to give any indication in the matter.
Under the MOU signed by the parties in early July, the proceeds in the deal were set according to Phoenix's equity as of the end of 2013, plus an unknown rate of interest. When the deal was signed, Delek Group mentioned proceeds totaling $1.7 billion.
As far as is known, no possible change in the structure of the acquiring group has been discussed with Delek Group or the Finance Ministry. The group is likely to include Phoenix CEO Eyal Lapidot, who brought the family to the negotiating table, and who wants to buy 5% of the shares from Delek Group.
Many obstacles to completing the deal
Meanwhile, the Kushner group is continuing its due diligence for Phoenix, currently listed on the Tel Aviv Stock Exchange (TASE) at a NIS 3 billion market cap. A few days ago, "Globes" revealed that the negotiations for signing a deal would be extended by a further 45 days, among other reasons due to the continuing warfare in Operation Protective Edge. The period involved is the exclusivity period for the Kushner group, following an initial 45-day period.
In any case, the deal is not certain, and is subject to completion of due diligence, successful completion of the negotiations between the parties, the signing of a binding agreement, and obtaining all the legally required regulatory approval.
Obtaining the Finance Ministry's approval is not merely a technical process, especially given the questionable history of the Kushner family. Among other things, this includes criminal violations of US federal law for which Charles Kushnher, the head of the family (who ostensibly no longer has a leading position in the family business), served prison time, and a large-scale debt arrangement in a Manhattan real estate deal led by Charles's son, Gerard Kushner, who currently heads the family business.
In addition, the financing structure of the current deal is problematic, including a NIS 980 loan Delek Group is likely to provide to the buyers. Another issue concerns the buyers' willingness to meet the Finance Ministry's stringent capital requirements for purchasers of a controlling share in an insurance company.
It is believed that the financing blueprint agreed among the parties, including the loan, is liable to complicate the obtaining of regulatory approval.
Published by Globes [online], Israel business news - www.globes-online.com - on August 26, 2014
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